Square One profit up 29% despite revenue decline

Square One Solutions Group Limited, the niche IT business enabling solutions provider, has reported a 29% increase in net profit before tax to R2.277 million (2002: R1.761 million) for the year to end-December 2003.

Although revenue declined by 48% to R91.422 million, CEO Trevor James pointed out that the decline could be partly attributed to a large, once-off biometric authentication contract which had boosted revenue in 2002, not to be repeated this year. Earnings per share at 6.1c, calculated on attributable profit of R1.342 million and 22 million shares in issue, improved markedly over the 0.05c achieved in 2002 when net attributable profit to shareholders was just R104 000.

Headline earnings per share were 7.8c based on headline profit of R1.711 million that included a goodwill amortisation of R369 000, also on 22 million shares in issue.

"The strong showing of the rand impacted on selling prices, particularly in our channel operations that make up a significant portion of our business," said James. "However, the progress we have made in offering diverse early adoption business-enabling solutions has underpinned an improved performance and we look forward to a growing contribution from the business solutions arm in the future."

He added that the company regarded the improvement in net profit before tax as a "resilient performance" during a challenging year of business.

"The results are in line with our strategic intent which retains a strong emphasis on the power, coding and marking and channel businesses, as well as a growing contribution from the strategic business solutions arm. We have expanded our business, significantly reduced overheads and tightened controls, all of which has led to improved margins."

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James said Square One's overall position in the information and communications technology (ICT) sector remained strong, with an increasing number of customers seeking strategic, tangible business benefits from the group's comprehensive business-enabling solutions.

A significant recent development was the conclusion of a black empowerment partnership agreement with Utho Technologies (Pty) Ltd, effective 1 January 2004. The deal has given Utho Technologies an effective 56.4% controlling interest in Square One. Utho Technologies is a 50% held subsidiary of Utho Investment Holding (Pty) Ltd, a 100% black owned holding company with interests in IT and corporate advisory services. The remaining shareholders in Utho Technology are individual black IT professionals. Utho Technologies is 100% owned by black shareholders, both directly and indirectly.

"The group benefits from additional skills acquired from Utho Technologies, and the deal underpins a sustainable, long-term future for our business by ensuring that we meet the majority of the requirements of the balanced scorecard approach that is expected to flow out of the recently announced ICT Charter and associated BEE targets," said James, who added that the deal's timely approval is expected by the Securities Regulation Panel, the JSE Securities Exchange, the Competition Commission and Square One shareholders.

"Surviving companies from the IT sector's stock market collapse a few years ago should now begin to reap the rewards of their persistence in overcoming the adverse trading conditions. Square One boasts 18 years of business experience and is one of those nationally represented companies with a solid platform to address the business opportunities in 2004. Our business solutions operation sees multiple opportunities to assist clients in optimising their existing IT investments while better leveraging any investments they may make in the future."

The Square One board decided not to declare a dividend.