Financial expenses, provisions, investments abroad stifle Optimiza

AMMAN — Interests and commissions on bank loans caused much of Optimiza's accumulated losses, the company told the Jordan Securities Commission (JSC) last week. 

Optimiza, the brand under which Al Faris National Company for Investment and Export operates, ranked financial expenses as the first reason for the losses pile up followed by provisions, investments abroad and depreciation. 

Al Faris offers fully integrated solutions and services in consulting, technology, outsourcing and training. 

In a letter clarifying the indebtedness to the JSC, Al Faris indicated that between January 1, 2011 and March 31, 2015, financial expenses amounted to JD4.4 million, accounting for 46 per cent of the accumulated losses.

Al Faris also repaid JD4.6 million to banks during the aforementioned period.

The accumulated losses since the start of 2011 reached JD9.6 million, or 60 per cent of the capital, at the end of this year's first quarter after all previous losses were written off on December 31, 2010, under a capital restructuring process.

In the letter, the company pointed out that bank debts at the end of last year totalled JD12 million and that it pays around JD1 million annually in interests and bank expenses, and JD1 million in installments to repay the principal amount and credit facilities.

To rectify the fresh financial strains, the company's future work plan includes raising the capital by JD10 million to JD26 million during the fourth quarter of this year by attracting strategic partners.

According to the letter, the new money from the capital increase will be used to pay off about JD8 million of the overall bank debts.

"This arrangement will have a very positive effect in terms of cash flow and higher profitability as the bank interest expenses will be lower," it said.

Optimiza added: "The remaining funds will be used to activate the working capital requirements and market the company's services regionally, particularly in Gulf Arab countries and North Africa."

The company expects all these matters to enhance its operational qualifications and capabilities to generate income.

Besides the injection of funds, the company's future work plan includes restructuring the debts through rescheduling most bank loan agreements.

Another reason behind the deficit that built-up over the past few years, was the JD2.2 million of provisions representing 23 per cent of the accumulated losses.  

"The provisions were taken by the company to safeguard against any obligations that may arise and to cover the impairment in the value of the goodwill and computer programmes," Optimiza Chief Executive Officer Majed Sifri said.

He added that an impairment test by a financial expert set the gap at JD3.9 million which the company's board of directors found it not indicative of present reality. 

Accordingly, the board decided to allocate a JD0.5 million impairment provision each year starting 2014 until the whole amount is covered.

Noting that a JD625,000 provision was made by the end of March 2015, Optimiza indicated that the accumulated losses would reach JD12.9 million with the full impairment charge.

The third reason given by the company for the grave deficit was the losses from investments abroad as well as depreciation expenses.

"Investments abroad from the beginning of 2011 until March 2015 resulted in JD1 million losses, or 11 per cent of the accumulated amount," Sifri indicated. "Losses from depreciation came at JD0.6 million, a rate of 6 per cent."

Losses amounting to JD1.3 million also piled up from the company's operations and non-operational expenses.

After this analysis, Al Faris acknowledged that it was wrong in delaying the capital increase from 2011 until the second quarter of 2014 and also 

in rescheduling the debts more than once to ease pressure on the cash flow.

These two missteps resulted in more bank interest and expenses that exacerbated the losses, Optimiza said.

Besides constraints from regional instability, the company explained how the liquidity squeeze hampered its operations in terms of obtaining supplies and dealing with suppliers, and how the freeze on credit facilities by banks, until the capital restructuring was completed, inhibited its functions to obtain local and regional business orders.   

Under the 2015-2016 operational and financing work plan, Al Faris will target mega and long-term projects in addition to the JD35 million worth  of jobs it is shouldering at present.

Al Faris said it will rely on the strategic partnership with CCC to obtain major regional construction projects and on a recently established mega-sales unit to develop and expand its scope of business.

"When trading Al Faris shares resumes on the Amman Stock Exchange in the coming days, it will be one of the most important factors that will enable Optimiza to attract new investors to finance the working capital  and achieve the company's future plan," the letter concluded.