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SQE
SQE
SQE - Square One - Audited Results for the Year Ended 31 December 2006
SQUARE ONE SOLUTIONS GROUP LIMITED
Registration number 1999/026822/06
Share code: SQE
ISIN: ZAE000023768
AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
BALANCE SHEETS
R `000 31 December 31 December
2006 2006
Audited Audited
Assets
Non-current assets 29 931 19 733
Fixed Assets 7 493 1 493
Intangible Assets 15 814 10 151
Loans Receivable - 14
Deferred tax 6 624 8 075
Current Assets 53 113 66 611
Inventories 18 127 18 397
Accounts Receivable 30 376 42 530
Bank balances 4 610 5 684
Total assets 83 044 86 344
Equity and liabilities
Issued capital 17 276 13 726
Accumulated profits/(losses) 1 795 (1 758)
Ordinary shareholders` funds 19 071 11 968
Outside shareholders` interest 686 686
Outside shareholders` loans 251 271
Long- term liabilities 17 544 19 462
Current liabilities 45 492 53 957
Accounts payable 39 107 49 125
Taxation 7 4
Current portion of long-term 5 701 4 030
liabilities
Provisions 677 798
Total equity and liabilities 83 044 86 344
EARNINGS PER SHARE
2006 2005
Earnings per share (cents) 11.2 5.3
Headline earnings per share 11.2 9.4
(cents)
Earnings per share is calculated
by using the relevant attributable
profits and issued shares.
Reconciliation of earnings and
headline earnings
Attributable profits 3 553 1 245
Impairment of goodwill - 976
Headline earnings 3 553 2 221
Number of issued shares 31 628 23 641
NOTE: The statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) and the accounting policies used in
the preparation of these results are consistent with those applied in the
previous reporting period. These results have been audited by Russell
Bedford Southern Africa (Jhb) Inc. The Audit Report is available for
inspection at the Company`s registered office.
ABRIDGED CASH FLOW STATEMENTS
2006 2005
Audited Audited
R `000
Net flow from operating activities 10 439 2 955
Net flow from investing activities (13 124) 3 208
Net flow from financing activities 1 611 (2 287)
(Decrease)/Increase in cash and (1 074) 3 876
cash equivalents
Cash at beginning of period 5 684 1 808
Cash at end of period 4 610 5 684
INCOME STATEMENTS
R `000 2006 2005
Audited Audited
Turnover 171 781 204 653
Operating profit before impairment 8 281 6 502
of goodwill
Impairment of goodwill - (976)
Net finance costs (3 277) (3 093)
Net profit before tax 5 004 2 433
Taxation (1 451) (1 188)
Net profit attributable to 3 553 1 245
ordinary shareholders
STATEMENTS OF CHANGES IN EQUITY
R `000 Share Share Distribu- Total Minority Total
capital premium table interest equity
reserves
Balance at 1 281 13 445 (1 758) 11 968 686 12 654
January 2006
Shares issued 35 3 515 3 550 - 3 550
Surplus for 3 553 3 553 3 553
the year
Balance at 31 316 16 960 1 795 19 071 686 19 757
December 2006
COMMENTARY
NATURE OF BUSINESS
Square One is an information technology company listed under the "Software
and Computer Services - Computer Services" Sector of the JSE Limited
("JSE"). Square One`s primary service focuses on providing niche business-
enabling solution offerings, which create value for our clients through the
application of business knowledge and best practices, technological skills
and capability.
The Group`s primary focus is the provision of value-based offerings centred
around IP infrastructure solutions, policy solutions, power and facility
solutions, product coding and marking solutions, mobile and wireless
solutions, telecommunications and service provider solutions to its key
target market of Enterprise, SME, Corporate and Government clients. Channel
Services continues to play an important role in the Group and has a well-
established and mature reseller channel. Square One Capital is a
specialist, financial services business that focuses on providing off-
balance sheet, structured finance solutions to its chosen markets.
Square One boasts 21 years of business experience with national
representation. The operations of the Group are made up of four primary
business units - Coding and Marking, Channel Services, Square One Capital
and Square One Technology Solutions, incorporating IP Infrastructure,
Policy solutions and Power and facilities. Square One has, since inception,
partnered with businesses that are market leaders who offer world class
brands or have significant technological advantages to benefit the Group`s
strategy. 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.
BUSINESS REVIEW
Headline earnings per share has increased by 19.2% for the financial year
ending31 December 2006 from 9.4 cents to 11.2 cents per share.
Earnings per share has increased by 111.3% for the same period from 5.3
cents to11.2 cents per share.
The Group posted revenues of R171.8 million for the year under review
against R204.6 million in 2005, a decrease of 16.1%. This is in line with
the Groups` strategic intent to move the nature of the business to higher
margin, solutions-based sales. Operating costs have increased by 4% to R
50.6 million.
The Group posted operating profits ofR8.3 million in 2006 compared to
operating profit of R6.5 million in 2005, an increase of 27.4%.
Net finance costs increased by R184 000 from R3.093 million in 2005 to
R3.277 million in 2006 due to higher interest rates.
Profit before tax is up 105,7% to R5.004 million for the 2006 financial
period compared to a profit before tax of R2.433 million achieved in 2005.
As a result of lower sales net working capital has reduced by R5.0 million
for the 2006 financial year.
The capital structure of the Group has strengthened in 2006. Capital and
reserves have increased from R12.0 million toR19.1 million, an increase of
R7.1 million.
Black Economic Empowerment (BEE)
The Group was not able to finalise the issue of shares to Utho Investment
Holding (Pty) Ltd ("Utho") and will, subject to obtaining the necessary
shareholder approval, subscribe for1 428 571 new Square One shares,
representing a 4,8% interest in the enlarged issued share capital.
Outlook
The South African market has always been somewhat of a conundrum when it
comes to keeping up with first world advancement in the Service
Provider/Telco space. This has largely been due to the monopoly held by
Telkom, heavy regulatory disciplines as well as the unique dynamics of the
country in terms of affordability versus uptake of new Telco services. In
stark contrast, and essentially due to the broader affordability to the man
in the street, South Africa has been at the forefront of per capita
cellular phone uptake worldwide! This phenomenon, 23 million users in 2005,
is indicative of how telecommunications technology is becoming a key
enabler in the mass market and emphasises the need to harness this
technology and integrate it into the commercially-orientated IP world.
Events that have taken place, such as the arrival of the SNO, de-regulation
of voice over data networks, the Convergence Bill and the enthusiastic
uptake of VPNs (Virtual Private Networks) in the Enterprise and Public
sectors of the market, have seen a new and exciting path opening up for
South African companies wanting to take advantage of the promise of, what
many are calling, Next Generation Networking. Next Generation Telco and
Service Provider Networks, in collaboration with Media and Entertainment
companies, almost certainly, will be IP, Broadband and Mobility-based with
the Internet as a key co-enabler.
The Square One Solutions Group ("Square One") has foreseen this paradigm
shift and has developed an IP-centric, Unified Communications strategy that
will allow clients to take full advantage of the exciting opportunities
Next Generation Networking will bring.
It has become apparent to us that unless SA enterprise infrastructures are
geared to seamlessly participate in Unified Communications opportunities
presented by IP, Internet and broadband-centric networks, they will not
capitalise on the cost saving and productivity benefits Service Providers
and Telcos will inevitably be offering. Coupled to these new services will
undoubtedly be the opportunities that integration of mass-market mobile
technology will enable. It is our belief that in the very near future, the
true cost reduction and benefit propositions offered by these Service
Providers and Telcos will exclusively be broadband, Internet and mobility-
based, with IP being the protocol "glue" that holds it all together.
Looking to Africa, we can expect to see the infrastructure spending to
continue unabated, while merger and acquisition activity will also gain
some steam with interest coming from foreign operators. Nigeria - the
mobile market that has captivated the attention of investors and operators
- is expected to reach over 45 million subscribers by the end of 2007.
Square One will pay careful attention to opportunities that present
themselves in Africa over the forthcoming year and beyond.
The SMB`s spending power is also growing, already accounting for more than
35% of spending on IT in the Middle East and Africa. In the emerging Middle
East and Africa region, the importance of a healthy and growing SMB sector
is paramount to economic performance. Square One is extremely well
positioned to address the SMB market sector, locally and into Africa and
will continue to re-enforce and grow its market share in this important
sector of the market.
Our underlying foundation for value creation will continue to be focused on
the individual components of improving returns, expanding organically and
acquiring incrementally. Our strategy has been in place for just over three
years and it involves:
* Continually improving the performance of our existing businesses based
on increasing customer intimacy and achieving "Operational Excellence"
* Organic expansion into new geographic areas, markets and the addition
of complementary products and services to serve our clients` needs
* Incremental acquisitions in our areas of competence and disposals of
product which do not fit our long-term goal of building value
In the 2007 report we expect to be able to report further progress in these
key components of our strategy as well as other initiatives in order to
derive maximum value for our staff, shareholders, customers and our
partners.
On behalf of the board.
G A Coetser
Chairman
R T Muzariri
Vice-Chairman
C L Alexander
Chief Executive Officer
Sandton
29 March 2006
AUDITORS REPORT
The statements have been audited by the Group`s auditors, Russell Bedford
Southern Africa (Jhb) Inc. The audit report is available for inspection at
the registered office of Square One.
DECLARATION OF DIVIDEND
The board has prudently decided not to declare a dividend.
Directors: G A Coetser* (Chairman), C L Alexander (Chief Executive
Officer), W T James, Prof M S Makhanya*, R R Masebelanga* (Deputy
Chairman), A Meyer, R T Muzariri (Vice Chairman), KXT Socikwa*
(*Non-executive)
SQUARE ONE SOLUTIONS GROUP LIMITED
Registration number 1999/026822/06
Share code: SQE & ISIN: ZAE000023768
REGISTERED ADDRESS
34 Monkor Drive, Randpark Ridge, 2156
(PO Box 1163, Gallo Manor 2052)
Telephone: (011) 321-5900
Telefax: (011) 444-2462
TRANSFER SECRETARIES
Link Market Services South Africa (Pty) Limited
PO Box 4844, Johannesburg 2000
SPONSOR
Bridge Capital Advisors (Pty) Ltd
PO Box 651010, Benmore, 2010
www.sq1.co.za
Date: 27/03/2007 14:15:06 Produced by the JSE SENS Department.
