| Wed 15 Apr 2009, 17:51 | | SQE - Square One - Audited results for the year ended 31 December 2008 |
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SQE
SQE
SQE - Square One - Audited results for the year ended 31 December 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")
Audited results for the year ended 31 December 2008
The audited results of Square One Solutions Group for the year ended 31
December 2008 are set out below.
Balance Sheets
Figures in Rand 31 December 30 June 2008 31 December
2008 R `000 2007
R `000 R `000
ASSETS
Non-Current Assets 47 460 47 795 48 846
Fixed Assets 7 482 7 791 8 828
Intangible assets 31 156 31 181 31 132
Deferred Tax 8 822 8 823 8 886
Current Assets 71 536 72 653 61 469
Inventory 14 525 23 804 19 109
Trade and other 56 994 48 808 38 912
receivables
Cash and cash equivalents 10 41 3 448
Taxation 7 - -
Total Assets 118 996 120 448 110 315
EQUITY AND LIABILITIES
Equity and reserves 38 483 38 562 38 400
Share capital 31 268 31 268 31 268
Retained income 7 215 7 294 7 132
Non-Current Liabilities 15 444 25 480 19 683
Long term liabilities 15 444 25 480 19 683
Current Liabilities 65 069 56 406 52 232
Current portion of long 1 752 2 397 5 366
term liabilities
Current tax payable - 21 21
Trade and other payables 60 134 47 989 45 650
Provisions 1 214 434 1 195
Bank overdraft 1 969 5 565 -
Total Equity and 118 996 120 448 110 315
Liabilities
Net asset value per share 86.7 86.9 86.5
(cents)
Net tangible asset value 16.5 16.6 16.4
per share (cents)
Number of shares in issue 44 394 44 394 44 394
at period end (`000)
Income statements
Figures in Rand Year ended 6 months Year ended
31 December ended 31 December
2008 30 June 2008 2007
R`000 R`000 R`000
Revenue 207 790 93 388 163 615
Operating profit 2 495 2 277 10 344
Finance costs (net) (2 268) (2 052) (3 339)
(Loss)/Profit on disposal (80) 0 363
of subsidiary
Profit before taxation 147 225 7 368
Taxation (64) (63) (2 031)
Profit for the period 83 162 5 337
Attributable to minorities - - -
Attributable to ordinary 83 162 5 337
equity holders
Adjustments for headline
earnings:
Loss on disposal of non- 80 0 (363)
core subsidiary
Headline earnings for the 163 162 4 974
period
Earnings per share (cents) 0.2 0.4 15.6
Headline earnings per share 0.4 0.4 14.5
(cents)
Weighted average number of 44 394 44 394 34 235
shares in issue (`000)
Statement of Changes in Equity
Figures in Rand Share Share Shares Distribu Sub- Minority
capital premium to be table total Interest Total
R `000 R `000 issued Reserves R `000 s equity
R `000 R `000 R `000 R`000
Balance at 01 316 16 960 - 1 795 19 071 686 19 757
January 2007
Issue of shares 13 869 13 110 13 992 13 992
Disposal of (686) (686)
subsidiary
Surplus for the 5 337 5 337 5 337
period
Balance at 31 329 17 829 13 110 7 132 38 400 - 38 400
December 2007
Surplus for the 83 83 83
year
Balance at 31 329 17 829 13 110 7 215 38 483 - 38 483
December 2008
Abridged Cash Flow Statements
Figures in Rand 31 December 30 June 31 December
2008 2008 2007
R `000 R `000 R `000
Cash flows (utilised 2 421 (13 622) 3 980
in)/generated from
operating activities
Cash flows utilised in (3 589) (1 147) (20 336)
investing activities
Cash flows from financing (4 239) 5 797 15 194
activities
Total cash movement for the (5 407) (8 972) (1 162)
period
Cash at the beginning of 3 448 3 448 4 610
the period
Total cash at end of the (1 959) (5 524) 3 448
period
COMMENTARY
The board of directors is pleased to present the company`s results for the
year ended 31 December 2008. These audited results have been prepared in
accordance with IAS 34 - Interim Financial Reporting on the basis of
consistent accounting policies that comply with International Financial
Reporting Standards ("IFRS") the Listings requirements of the JSE and the
Companies Act of 1973 as ammended. The results were audited by
SizweNtsaluba VSP. The unmodified audit report is available for inspection
at the company`s registered office.
BACKGROUND AND NATURE OF BUSINESS
The Square One Solutions Group was founded in 1986 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. The Group has strong black ownership and
management, a national footprint and more than 22 years experience focused
on the South African market. 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 its 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 24x365 national support and service.
FINANCIAL OVERVIEW
The results for the year ended 31 December 2008 reflect earnings and
headline earnings attributable to ordinary shareholders of R83 000 (2007:
R5.3 million) and R163 000 (2007: R4.9 million) respectively for the
period under review. The earnings and headline earnings per share for the
year ended 31 December 2008 is 0.2 cents (2007: 15.6 cents) and 0.4 cents
(2007: 14.5 cents) per share.
Income statement review
Turnover has increased by 27% over the prior period. Gross profit has also
increased by a similar percentage. In line with prior year initiatives,
the Group has focused 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. The contracts being signed with
customers vary from 1 to 5 year service and/or rental contracts. In
addition, the Group in the past year, focussed on diversifying the
customer base and strategically positioning the company into new and
parallel markets, primarily the government and parastatal markets. This
has now been achieved with the group securing new contracts with
parastatals, notably Telkom, in the second half of the year.
Operating expenses increased from R61 million in the prior period to R78
million, with approximately 75% of this increase being due to upfront
operating costs being incurred in order to support the strategic
initiatives outlined above. Expenses relating to gearing and staffing up
for this business exceeded budgeted expectations and accordingly, profit
for the period is substantially down compared to the previous period. It
should also be noted that many of the expenses relating to these
initiatives were once-off in nature and the benefits of establishing this
capability will be reaped in the coming year.
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 are expected to normalise by the end of the third quarter in
2009.
Net finance costs decreased for the comparable period due to the ongoing
reduction of interest-bearing liabilities.
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 have decreased slightlyover the prior year as there has been
no significant acquisitions of assets in the year.
With the recent financial markets turmoil, there is a sharp pull back on
financing activities and we will see a sharp slowdown in this business for
2009.
Accounts receivable increased by 45%, primarily due to the trade debtors
mix changing and shifting towards longer receipt cycles from parastatal
and government customers. Stock and accounts payable have not varied much
from the prior period due to improved management of stock levels and the
requirement for upfront payments in the new business area.
During the period, cash has been applied to the elimination of certain
long-term liabilities, primarily comprising a term loan from Citibank.
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 in FY`2008, the company now has no other exposure to bank
funding and has a sound balance sheet going forward.
Accounts payable have increased by approximately 32% due to the higher
trading volumes and higher order quantum that we are receiving as a result
of the new business from the acquisitions during the year.
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
debtors in line with normal terms in the parastatal and government
business. 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
Mr Fumanekile Gqiba has been appointed as non executive director of Square
One, with effect from 25 March 2009.
CHANGE OF AUDITOR
Subsequent to year end, the company appointed SizweNtsaluba VSP as
auditors to the company.
LITIGATION
There is no litigation pending against the company.
FUTURE PROSPECTS
Whilst the results appear to indicate a decline in the business, 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
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. 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.
DISPOSAL OF NON-CORE BUSINESS
During the year the Group disposed of a non-core business housed in
Document Solutions (Pty) Ltd. The disposal has had a negligible impact on
the results as disclosed above.
ACQUISITION OF STRUCTURED INFRASTRUCTURE SOLUTIONS (PROPRIETARY) LIMITED
As announced previously the acquisition of SIS was completed successfully
and received shareholder approval at a general meeting held in August
2008. This business has now been successfully integrated into the Group
and forms a core component of our strategic intent going forward as
outlined above.
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcements dated 20 January
and 4 March 2009. The company has subsequently withdrawn from these
negotiations and accordingly, caution is no longer required when dealing
in the company`s securities.
By order of the Board
G Coetser C Alexander
Chairman Chief Executive Officer
15 April 2009
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, FF Gqiba
Sponsor Transfer Office
Grindrod Bank Limited Link Market Services South Africa
(Proprietary) Limited
Date: 15/04/2009 17:51:45 Produced by the JSE SENS Department.
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