| Fri 10 Oct 2008, 15:00 | | SQE - Square One - Unaudited results for the six months ended 30 June 2008 |
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SQE
SQE
SQE - Square One - Unaudited results for the six months ended 30 June 2008
SQUARE ONE SOLUTIONS GROUP LIMITED
Incorporated in the Republic of South Africa)
(Registration number 1999/026822/06)
Share code: SQE ISIN: ZAE00023768
("Square One" or "the company")
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008
The unaudited results of Square One Solutions Group for the six months ended 30
June 2008 are set out below.
Balance Sheets
Figures in Rand 30 June 2008 30 June 2007 31 December
R `000 R `000 2007
R `000
ASSETS
NonCurrent Assets 47 795 27 654 48 846
Fixed Assets 7 791 6 201 8 828
Intangible assets 31 181 15 784 31 132
Deferred Tax 8 823 5 669 8 886
Current Assets 72 653 65 470 61 469
Inventory 23 804 18 656 19 109
Trade and other receivables 48 808 45 494 38 912
Cash and cash equivalents 41 1 320 3 448
Total Assets 120 448 93 124 110 315
EQUITY AND LIABILITIES
Equity and reserves 38 562 22 704 38 400
Share capital 31 268 18 207 31 268
Retained income 7 294 4 497 7 132
NonCurrent Liabilities 25 480 14 245 19 683
Long term liabilities 25 480 14 245 19 683
Current Liabilities 56 406 56 175 52 232
Current portion of long 2 397 5 744 5 366
term liabilities
Current tax payable 21 - 21
Trade and other payables 47 989 49 758 45 650
Provisions 434 673 1 195
Bank overdraft 5 565 - -
Total Equity and 120 448 93 124 110 315
Liabilities
Net asset value per share 86.9 68.89 86.5
(cents)
Net tangible asset value 16.6 21.00 16.4
per share (cents)
Number of shares in issue 44 394 32 957 44 394
at period end (`000)
Income statements
Figures in Rand 6 months 6 months 12 months
ended ended ended
30 June 30 June 2007 31 December
2008 R`000 2007
R`000 R`000
Revenue 93 388 79 622 163 615
Operating profit 2 277 4 967 10 707
Finance costs (net) (2 052) (1 310) (3 339)
Profit before taxation 225 3 657 7 368
Taxation (63) (955) (2 031)
Profit for the period 162 2 702 5 337
Attributable to minorities - - -
Earnings Attributable to 162 2 702 5 337
ordinary equity holders
Adjustments for headline
earnings:
Profit on disposal of non- 0 (364) (363)
core subsidiary
Headline earnings for the 162 2 338 4 974
period
Earnings per share (cents) 0.4 8.2 12.0
Headline earnings per share 0.4 7.1 11.2
(cents)
Diluted HEPS (cents) 0.4 7.1 11.2
Weighted average number of 44 394 32 957 44 394
shares in issue (`000) 44 394 32 957 44 394
Fully diluted number of
shares in issues
Impact of increased borrowings on EPS (1.67) 0 0
Statement of Changes in Equity
Figures in Rand Share Share Distrib Sub- Minorit Total
capital premium utable total y equity
R `000 R `000 Reserve R `000 Interes R `000
s ts
R `000 R `000
Balance at 01 281 13 445 (1 758) 11 968 686 12 654
January 2006
Issue of shares 35 3 515 3 550 3 550
Surplus for the 3 553 3 553 3 553
period
Balance at 01 316 16 960 1 795 19 071 686 19 757
January 2007
Issue of shares 128 13 864 13 992 13 992
Disposal of
subsidiary
Surplus for the 5 337 5 337 5 337
period
Balance at 01 444 30 824 7 132 38 400 - 38 400
January 2008
Surplus for the 162 162 162
period
Balance at 30 444 30 824 7 294 38 562 - 38 562
June 2008
Abridged Cash Flow Statements
Figures in Rand 30 June 2008 30 June 2007 31 December
2007
R `000 R `000 R `000
Cash flows (utilised (13 622) 175 3 980
in)/generated from
operating activities
Cash flows utilised in (1 147) (846) (20 336)
investing activities
Cash flows from financing 5 797 (2 619) 15 194
activities
Total cash movement for the (8 972) (3 290) (1 162)
period
Cash at the beginning of 3 448 4 610 4 610
the period
Total cash at end of the (5 524) 1 320 3 448
period
COMMENTARY
The board of directors are pleased to present the company`s interim results for
the 6 month period ended 30 June 2008. The directors are reporting attributable
and headline earnings of R162 000. The earnings are substantially down compared
to the prior comparative period, despite higher turnover levels. However, this
is in line with the company`s decision to focus on diversifying the customer
base and strategically positioning the company into new and parallel markets.
These markets primarily comprise the government and parastatal markets, through
strategic alliances and initiatives. Significant parastatal business was secured
during May and June 2008 and will contribute significantly to revenues through
the second half of the year. The major benefit of the contracts will be
appreciated in the 2009 and 2010 financial years.
BASIS OF PREPARATION
These consolidated condensed financial statements are prepared in accordance
with the Listings Requirements of the JSE Limited, the International Financial
Reporting Standards ("IFRS") on Interim Financial Reporting (IAS 34).
These interim results have not been audited or reviewed by our current auditors.
BACKGROUND AND NATURE OF BUSINESS
The Square One Solutions Group was both founded and listed in the year 2000. The
Group is an applied technology company listed under the "Information Technology
(IT) - Software and Computer Services" sector of the JSE Limited ("JSE").
Square One Solutions Group`s primary focus is the provision of niche, applied
technology solutions. As a Group with strong black ownership and management,
with a national footprint and more than 23 years experience focused on the South
African market, Square One Solutions Group is uniquely positioned to be large
enough to ensure quality delivery, whilst retaining a small enough culture to
truly care about our clients. The Group`s value-based offerings are centred on:
Unified Communication solutions
Networking solutions
* Data
* Voice
Policy and Lawful Interception solutions
* Data
* Voice
Infrastructure solutions
* Power solutions
* Facility solutions
Coding and Marking solutions
* CIJ
* Laser
* Outer case coding
* Commercial printing
* Outsourced coding solutions
* Finance and leasing services
The Group focuses on coupling innovation, technology and service in order to
achieve value for its clients while achieving superior returns and growth in
earnings for its shareholders.
INDUSTRY AND BUSINESS OVERVIEW
Square One`s primary service focuses on providing niche business-enabling,
technology solutions, which create value for our clients through the application
of business knowledge and best practices, technological skills and capability.
The Group`s core operations are focused on the provision of value-based
solutions centred around Unified Communications solutions, Infrastructure,
Electrical and Facility solutions, Industrial Coding and Marking solutions and
Finance, Leasing and Rental solutions to its key target market of enterprise,
SME, corporate and Government clients. The Company also provides 24x7x365
national support and service.
FINANCIAL OVERVIEW
The results for the 6 months ended 30 June 2008 reflect earnings and headline
earnings attributable to ordinary shareholders of R162 000 (2007: R2.7 million)
and R162 000 (2007: R2.3 million) respectively for the period under review. The
earnings and headline earnings per share for the 6 month period ended 30 June
2008 is 0.4 cents (2007: 8.2 cents) and 0.4 cents (2007: 7.1 cents) per share.
Income statement review
Turnover has increased by 17.5% over the prior period. In line with prior year
initiatives, the Group has focussed on reducing turnover from low margin
business to service and contract type business, which, typically attracts a
higher gross margin for the Group. Consequently, gross margins in the operating
units are well up year-on-year for the same period and the group`s blended gross
margin percentage is holding steady at more than respectable levels. The
contracts being signed with customers vary from 1 to 5 year service and/or
rental contracts.
Operating expenses increased from R26 million in the prior period to R35
million, with approximately 75% of this increase being due to upfront operating
costs being incurred in order to support the strategic initiatives outlined
above. These necessary costs are considered to be primarily, once off in nature
and have led to new medium and long term contracts being signed. The monthly
overhead costs have reduced and normalised since the period end.
These long term contracts and initiatives will provide Square One with a
predictable and sustainable project based revenue flow through the 2009 and 2010
periods and as such a strategic decision was taken to absorb the upfront
expenses in order to get the initiatives underway. These expenses are related
to, but not limited to, once off human resource costs, project initiation costs
incremental equipment costs, consulting fees and legal fees.
The bulk of these costs have been accounted for in the current reporting period
and, as indicated above, have been forecast to normalise by the end of the third
quarter in 2008.
Net finance costs increased for the comparable period due to the requirement to
fund the new initiatives, which required upfront payment of certain new
suppliers and increase in stock levels to service the new business areas.
The Group has for the past five years, returned consistent growth for the market
and shareholders alike. Accordingly, the executive team trusts that the market,
our valued shareholders, clients, partners and other stakeholders will support
the strategic intent to accelerate the growth of the business through the
initiatives concluded in the current reporting period.
Balance sheet review
Fixed assets increased over the prior year due to an upgrade of software during
the year and growth in the group`s rental business, which is increasing at the
rate of approximately 10% per quarter.
Intangible assets increased substantially due to the acquisition of Structured
Infrastructure Solutions (Proprietary) Limited with effect from 01 November
2007.
Accounts receivable continue to be well managed only increasing by 7.2% compared
to the increase in turnover of 17.5%. Stock levels increased by 28% due to the
new business areas requiring large inventory investment upfront.
During the period, cash has been applied to the elimination of certain long-term
liabilities, primarily comprising a term loan from Citi Bank. Overall long term
liabilities increased due to a decision by shareholders to inject loans to
support the move into new markets, which required substantial upfront funding.
Other than the factoring arrangement concluded this year, the company now has no
exposure to bank funding and has a sound balance sheet going forward.
Cash Flow Statement review
As mentioned earlier, cash flow utilised in operating activities has primarily
been applied to working capital, with a large increase in stock levels, without
a corresponding increase in accounts payable. Cash inflow from financing
activities primarily relates to shareholder funding advanced to the Group.
The increase in applied shareholder funding further validates the faith and
commitment that the founding shareholders have in the strategic direction of the
business.
DIVIDENDS
The directors have decided not to declare an interim dividend.
ACQUISITIONS AND ISSUE OF SHARES FOR CASH
There have been no acquisitions and no issues of shares for cash during the
period under review.
SUBSEQUENT EVENTS
There have been no significant subsequent events that require reporting.
DIRECTOR CHANGES
There have been no changes in directors for the period under review.
LITIGATION
There is no litigation pending against the company.
FUTURE PROSPECTS
Whilst the results appear to indicate a decline in the business, to the contrary
the fundamentals and state of contracts are all healthy. The business and
customers are more diversified. The company has bolstered its core skills sets
and has a balance of seasoned professionals working for the business. Square One
operates at the top of the SME market and has now successfully entered the
government and parastatal markets through strategic alliances and associated
initiatives. Square One`s existing business is still very much profitable and
Square One is geared up to service the new business opportunities recently
secured. The strategic direction of the Group remains consistent with
previously stated intent and the Group has used this solid foundation as a
springboard into the newly acquired markets and client base.
Square One expects a continued, managed and sustainable growth trend in its
strategic areas of focus and is confident that the upward trend in revenue will
continue. Operating costs have reduced after period end and it is anticipated
that Square One will realise the benefits from the new direction taken in the
second half of the year. With the groundwork now in place, Square One expects to
unlock greater profitability, whilst continuing to secure additional,
sustainable and predictable contract based revenues for the group.
By order of the Board
G Coetser C Alexander
Chairman Chief Executive Officer
10 October 2008
Johannesburg
Registered Office
34 Monkor Drive, Randpark Ridge, Randburg, 2156, South Africa
PO Box 1163, Gallo Manor, 2052, South Africa
Directors
Executive C Alexander (CEO), T James, R Muzariri, (Vice Chair)
Non-Executive G Coetser (Chair), Prof M Makhanya,, R
Masebelanga, K Socikwa,
Sponsor Transfer Office
Exchange Sponsors Link Market Services South Africa
(Proprietary) Limited (Proprietary) Limited
Date: 10/10/2008 15:00:03 Produced by the JSE SENS Department.
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