| Thu 15 Apr 2010, 17:49 | | SQE - Square One - Unaudited results for the year ended 31 December 2009 |
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SQE
SQE
SQE - Square One - Unaudited results for the year ended 31 December 2009
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 year ended 31 December 2009
The unaudited results of Square One Solutions Group for the year ended 31
December 2009 are set out below.
Balance Sheets
Figures in Rand 31 December 30 June 2009 31 December
2009 R `000 2008
R `000 R `000
ASSETS
NonCurrent Assets 75 066 46 083 47 460
Fixed Assets 4 370 5 916 7 482
Intangible assets 54 768 31 302 31 156
Deferred Tax 15 928 8 865 8 822
Current Assets 28 529 81 275 71 536
Inventory 12 155 15 510 14 525
Trade and other receivables 15 542 65 124 56 994
Cash and cash equivalents 832 634 10
Taxation - 7 7
Total Assets 103 595 127 358 118 996
EQUITY AND LIABILITIES
Equity and reserves 15 543 38 372 38 483
Share capital 31 268 31 268 31 268
Retained income (15 725) 7 104 7 215
NonCurrent Liabilities 63 111 24 814 15 444
Long term liabilities 63 111 24 814 15 444
Current Liabilities 24 941 64 172 65 069
Current portion of long term 1 080 1 284 1 752
liabilities
Current tax payable 106 - -
Trade and other payables 22 467 61 931 60 134
Provisions 1 288 957 1 214
Bank overdraft - - 1 969
Total Equity and Liabilities 103 595 127 358 118 996
Net asset value per share (cents) 35.0 86.4 86.7
Net tangible asset value per share -88.4 15.9 16.5
(cents)
Number of shares in issue at period 44 394 44 394 44 394
end (`000)
Income statements
Figures in Rand Year ended 6 months Year ended
31 December ended 31 December
2009 30 June 2009 2008
R`000 R`000 R`000
Revenue 76 533 54 252 207 790
Operating profit 2 139 385 2 495
Finance costs (net) (477) (547) (2 268)
Loss on disposal of subsidiary (7 860) - (80)
Amortization of intangible assets (15 826) - -
Profit on disposal of asset - 8 -
(Loss)/Profit before taxation (22 024) (154) 147
Taxation (916) 43 (64)
(Loss) / Profit for the period (22 940) (111) 83
Attributable to minorities - - -
Attributable to ordinary equity (22 940) (111) 83
holders
Reconciliation
Adjustments for headline earnings:
Loss on disposal of non-core 7 860 - 80
subsidiary
Profit on sale of asset - (8) -
Amortization of intangible assets 15 826
Headline earnings/(loss) for the 746 (119) 163
period
Earnings/(loss) per share (cents) -51.6 -0.3 0.2
Headline earnings/(loss) per share 2.0 -0.3 0.4
(cents)
Weighted average number of shares in 44 394 44 394 44 394
issue (`000)
Statement of Changes in Equity
Figures in Rand Share Share Distribu Sub-total Minorit
capital premium table R `000 y Total
R `000 R `000 Reserves Interes equity
R `000 ts R`000
R `000
Balance at 01 January 329 30 824 7 132 38 400 - 38 400
2008
Surplus for the year 83 83 83
Balance at 31 December 329 30 824 7 215 38 483 - 38 483
2008
Shortfall for the year (22 940) (22 940)5 (22 940)
Balance at 31 December 329 30 824 15 725 15 543 - 15 543
2009
Cash Flow Statements
Figures in Rand 31 December 30 June 31 December
2009 2009 2008
R `000 R `000 R `000
Cash flows (utilised in)/generated 3 394 (6 114) 2 421
from operating activities
Cash flows utilised in investing (48 268) (662) (3 589)
activities
Cash flows from financing activities 47 667 9 369 (4 239)
Total cash movement for the period 2 791 2 593 (5 407)
Cash at the beginning of the period (1 959) (1 959) 3 448
Total cash at end of the period 832 634 (1 959)
COMMENTARY
The board of directors hereby present the company`s results for the financial
year ended 31 December 2009. These unaudited 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
amended.
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 23 years experience focused on the South
African market. The Group`s value-based offerings are centred on:
Unified Communication solutions
Networking solutions
Data
Voice
Software Application integration solutions
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 striving to achieve 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 financial year ended 31 December 2009 reflect a decline in
earnings and an increase in headline earnings attributable to ordinary
shareholders of R(22,940,000)(2008: Earnings R83,000) and R746,000 (2008:
Headline Earnings R163,000) respectively for the period under review. The
deficit and headline earnings per share for the year ended 31 December 2009 is -
51.6 cents (2008: Earnings 0.2 cents) and 2.0 cents (2008: 0.4 cents) per share.
Income statement review
Turnover has decreased by 63% over the prior period largely as a result of
cutbacks in technology spend budgets by clients across the board in response to
the major economic downturn especially from late 2008 to end 2009. In addition a
major contract with a dominant fixed line operator which was expected to yield
in excess of R100 million in turnover based on projects that had previously been
planned, only yielded approximately R850,000 in new orders in 2009. As the
business had been geared to service this important segment of our business the
lack of orders had a significant and negative impact on our business overall.
Gross profit has decreased by 45% (2008:12%). However, the Group achieved higher
margins which was pleasing. In line with prior year initiatives, the Group has
continued with its focus on reducing turnover from low margin distribution type
business to service and contract type business which typically attracts a higher
gross margin for the Group. Consequently, gross margins in the operating units
have held up very well and in some cases increased particularly in light of the
economic decline that has severely impacted the Group as a result of the
worldwide turmoil in the financial markets.
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. As
stated above, unfortunately orders from a major fixed line telecommunications
client declined substantially mainly attributable to the current economic
climate. This contract has lapsed and was not renewed by the telecommunications
operator. The loss making subsidiary was sold out of the Group with effect from
1 July 2009. The results presented show a loss on disposal of the subsidiary of
-R7,860,000 (2008:-R80,000)
Operating expenses decreased approximately 26.6% in the current period as
compared to the prior period. This was largely due to staff cutbacks and
attendant costs reductions as part of the repositioning of the Group to ensure
long term longevity in light of prevailing market conditions.
As stated above, expenses were reviewed and where appropriate action was taken
to realign our cost structures with current revenue levels with a substantial
reduction in headcount. Whilst this process was painful we are now reaping the
benefits of longer term sustainability as a more than 23 year-old business in
this tough trading environment. We continue to manage costs and will act
aggressively where necessary to make timely adjustments to ensure the longevity
of our business for shareholders, employees and all other interested
stakeholders
Net finance costs decreased for the comparable period not withstanding the
injection of further working capital by shareholders. During the current year
management (with the approval of the Audit committee) decided to write off
goodwill of approximately R12 million partly as a result of an internal
restructuring process as well as part of the process of streamlining the Group
to focus on core areas where we see significant growth. Accordingly goodwill
that had been raised in prior years now required impairment due to changed
operating circumstances and muted growth expectations in the short term. Some of
the goodwill impairment was also tied to activities that the Group has exited or
entities sold out of the Group.
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 continued strategic intent to accelerate the growth of the business
through the initiatives concluded in the prior year and current reporting
period, in particular the push into the public sector.
In particular, the Group is starting to experience the positive effects of its
focus on the government and parastatal sector with growing orders being received
from provincial and national government departments. Indications are there that
2010 should be a year of significant growth in this market segment, consistent
with government`s intent to focus more on visible service delivery.
Balance sheet review
Fixed assets have decreased by approximately 42% over the prior year as there
has been no significant acquisitions of assets in the reporting period. The
decline is largely due to depreciation as the bulk of the assets acquired in the
Group are technological in nature and therefore amortised over a 3 year period.
There is also some impact pertaining to the disposal of the subsidiary.
With the recent financial markets turmoil, there is a sharp pull back on
financing activities and we have seen a sharp slowdown in this business unit for
the first half of 2009. However as interest rates have declined we have started
to see recovery in this business unit and expect that 2010 will be a year of
resuming strong sustained growth. Accordingly we have embarked on a measured
recruitment drive to ensure that we capitalise on opportunities as they arise in
the market.
Accounts receivable decreased by 76% (2008: increase 33%), primarily due to the
decline in turnover overall as well as a focus on debtor collections to improve
cashflow availability to the Group. Stock declined by 16% (2008:35%) from the
prior period due to improved management of stock levels and the requirement for
upfront payments in the new business area.
Accounts payable decreased by 63% compared to a marginal increase in 2008
directly in line with reduced trading activity in the current period.
Cash Flow Statement review
As mentioned earlier, the businesses being retained were profitable and
generated positive cash flow in the current reporting period. Cash inflow from
financing activities primarily relates to shareholder funding advanced to the
Group. This was required to support the necessary investment to consolidate the
several transversal contracts secured through the strategic initiatives of the
Group. In addition, further funding than had been anticipated was required to
support the funding needs of the subsidiary that had been established to fulfil
on the major contract with the major fixed line operator.
The increase in applied shareholder funding further validates the faith and
commitment that the founding shareholders have in the strategic direction of the
business. As stated above, a large portion of the shareholder funding introduced
in the past year was spent on integrating the new transversal government
contracts into the group as well as funding operating costs pertaining to the
personnel and delivery infrastructure for the major contract with the fixed line
operator that failed to materialise.
DIVIDENDS
The directors have decided not to declare an interim dividend.
ACQUISITIONS AND ISSUE OF SHARES FOR CASH
Tecor Group (Pty) Ltd pursuant to a section 311 offer of compromise was acquired
and brought into the Group with effect from 1 July 2009. Tecor holds several
significant transversal tenders required by the Group to execute on its strategy
of growing its public sector business portfolio. Tecor has now been renamed
Square One Telecoms (Pty) Ltd.
SUBSEQUENT EVENTS
There have been no significant subsequent events that require reporting.
DIRECTOR CHANGES
As reported previously both Mr. C.L. Alexander and Mr F.F. Gqiba resigned as a
Director of Square One, with effect from 1 September 2009 and 1 February 2010
respectively.
CHANGE OF AUDITOR
There have been no changes to the auditors to the company.
LITIGATION
There is no material 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 Group has and continues to bolster 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 acquisition of several
transversal contracts in the public sector space and strategic alliances and
associated initiatives. Square One`s existing business is still profitable
albeit supported by key restructuring initiatives on an ongoing basis 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 continue to be reviewed and where
appropriate reduced and Square One is now starting to realise the benefits from
the new direction taken in the second half of the 2009 financial 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.
Johannesburg
15 April 2010
Sponsor:
Grindrod Bank Limited
Date: 15/04/2010 17:49:01 Produced by the JSE SENS Department.
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