Isolution reports higher margins

By Nicola Mawson, Contributing journalist

Johannesburg, 14 Sept 2006

A concerted effort to enhance earnings saw margin growth outstrip revenue growth in its latest financial year, says JSE-listed Interconnective Solutions (Isolution).

CEO Mark Smith said in his review of the company`s results to end-June: "During the year, effort was put into enhancing the quality of earnings. In the process, lower-margin business was replaced with higher earning revenues."

The company says this saw revenue increase by 8.7%, but gross profit, as a percentage of revenue, improved by 17% from 44.7% to 52.4%.

During the year, Isolution acquired 40% of Internet service provider ALTONet. It also formed a new company, SurveyOnline, which provides electronic surveys using various forms such as e-mail, Web sites, SMS and interactive voice response.

FoneWorx, which provides business and infotainment services and is licensed to Vodacom, MTN, Cell C and Telkom, has bedded down its new divisions - Infotainment and Business Services - and these are now "well established and focused".

Overall, the company reports that earnings before net interest, tax, depreciation and amortisation improved by 58% to R3.77 million, up from R2.381 million.

Earnings per share increased by 138% from 0.93c to 2.2c and headline earnings per share by 105% from 1.22c to 2.50c, stated Smith in his review to shareholders yesterday.

The company said its cash focus "was well managed with excess funds placed at favourable interest rates". Cash-on-hand improved and the company now has R4.5 million available against R3 million last year. "The group remains debt-free save for short-term finance for vehicles and capital equipment, which amounts to R2.3 million in aggregate."

Isolution spent almost R1 million on research and development during the financial year. "The benefits of this expenditure will accrue to the group in the future," Smith said.

Smith is optimistic about the growth potential of its business services unit and the stable channels to market that have been developed by its dealer base. He added that its intellectual property has been enhanced with the launch of The Virtual Business Centre and "positions the group as one of the leading value-added service providers, which includes having its own Internet service provider".

The company`s shares closed yesterday at 18c, unchanged from the previous day`s close. Its 12-month high is 35c and its 12-month low is 10c.